Clio, a Canadian software company that aims to help legal practices work more efficiently with cloud-based technology, has raised $900 million in a Series F round, valuing the company at $3 billion.
The valuation is nearly double the $1.6 billion valuation the Vancouver, British Columbia company achieved when it raised $110 million in April 2021.
Clio describes itself as “the operating system for law firms,” and Clio founder and CEO Jack Newton says the company has been profitable (EBITDA positive) for several years, with ARR recently exceeding $200 million, up from $100 million in June 2022.
The company is working to simplify law firm management by centralizing client onboarding, case and document management, payments, etc. The company is used by more than 150,000 legal professionals and has recently expanded into the Asia-Pacific region, claiming to have an increasing number of mid-sized law firm clients.
New Enterprise Associates (NEA) led the financing with over $500 million investment, marking the company’s first investment. New investors Goldman Sachs Asset Management, Sixth Street Growth, CapitalG and Tidemark joined existing backers TCV, JMI Equity, funds and accounts advised by T. Rowe Price and OMERS in participating in the financing.
Notably, Newton said a “significant amount” of the latest round of funding is a secondary financing that will be used to liquidate some of the equity held by existing investors and employees.
The investment brings the total capital Clio has raised since its 2008 founding to nearly $1.3 billion.
While this mega-round is substantial, it may be especially notable in today’s environment, where venture funding of this magnitude is less common. For reference, 105 mega-rounds were raised worldwide in the first quarter as a whole, according to CB Insights.
The company is benefiting from some big tailwinds, Newton told TechCrunch in an interview.
“COVID-19 has caused an explosion in adoption of cloud technology in general and Clio in particular,” he said. “We’ve also seen a huge tailwind from AI and the tremendous interest from lawyers and the legal profession at large in AI and how it can improve productivity.”
Payments and AI as growth drivers
In 2022, Clio began integrating payments capabilities into its services, a move that expanded revenue beyond the company’s core SaaS business, Newton told TechCrunch. Clio’s payments business now processes billions of dollars a year in legal-focused transactions. The company gets a “small percentage” of every transaction posted through Clio payments, Newton said.
“The embedded payments opportunity with Clio and the broader fintech opportunity is something we’re really excited about,” Newton said, “both because it’s how it’s grown and because we see it growing a lot in the future.”
Newton noted that payments in the legal industry are more complicated than typical electronic payments.
“For example, trust funds and trust transactions have to be managed in a very specific way, and you can’t deduct credit card transaction fees from trust account transactions like you can for example for a small merchant using a Square account,” he said.
In other words, if an attorney charges $100 for a trust transaction, and $3 is deducted as a fee, leaving only $97 in the bank account, the attorney is essentially committing fraud by not depositing 100% of the funds into the trust account.
“So the nuance with legal payments is that the fees have to be debited from a separate operating account,” he said, adding that Clio’s services are compliant with trust-related accounting needs and are easy for lawyers to use. Clio also offers accounting products to help companies manage their finances.
The company has also begun efforts to introduce AI into its products from early 2023.
This year, the firm plans to release GA Clio Duo, an integrated generative AI assistant aimed at helping lawyers “complete routine tasks and leverage firm analytics to work more efficiently,” including audit logging capabilities for courtroom discovery. It can also recommend which marketing channels lawyers should use to most effectively generate new leads. Newton said the firm plans to add more AI capabilities in the future.
Today, Clio has more than 1,100 employees and its software is used by law firms in more than 130 countries.
“We have moved beyond our original SMB market to become a leader in the mid-market as well, experienced explosive growth in payments and are at the forefront of key product categories such as e-filing, document automation and AI,” said Amol Herekar, general partner at TCV and board member at Clio.
Of course, Clio isn’t the only legal tech benefiting from the AI revolution. In April, Lawhive, a UK-based legal tech startup that offers AI-based in-house “counsel” through a SaaS platform targeted at small law firms, raised $11.9 million in a seed round. Eve, backed by Lightspeed and Menlo among others, emerged from stealth last October with a mission to shake up the legal industry by harnessing the power of large-scale language models (like OpenAI’s ChatGPT).
